Main Assumptions of the B.C. Input-Output Model
Input-output analysis is based on various assumptions about the economy and the inter-relationships between industries.
These assumptions include:
Input-Output Models are linear
They assume that a given change in the demand for a commodity or for the outputs of a given industry will translate into a proportional change in production.
Change is immediate
Input-output models do not take into account the amount of time required for changes to happen. Economic adjustments resulting from a change in demand are assumed to happen immediately.
No capacity constraints
The assumption is that there are no capacity constraints and that an increase in the demand for labour will result in an increase in employment (rather than simply re-deploying workers).
Spending of personal income
It is assumed that consumers spend an average of 95% of their disposable income on goods and services. The remaining 5% of disposable income goes into savings. This assumption can be changed if there is evidence to suggest doing so in particular cases.
Stability of relationships between industries
The current B.C. Input-Output Model is derived from a “snapshot” of B.C.’s economic structure in 2017. It assumes that relationships between industries are relatively stable over time, so that the 2017 structure of the economy can be used to estimate the economic impact associated with a particular project.